China central bank report raises GDP, inflation forecasts

China central bank report raises GDP, inflation forecasts
Gross domestic product expected to grow by 11.6%, inflation by 4.6%


PROPERTY BUBBLE: China has already raised lending rates five times so far this year, but these have failed to dampen demand for property, as investors continue to favour fixed assets. -- PHOTO: AP


SHANGHAI - THE People's Bank of China's research department has raised its economic growth forecast and said inflation will probably accelerate.

China's gross domestic product (GDP) may expand 11.6 per cent this year, according to the report published in the China Securities Journal, faster than the agency's June estimate for a 10.8 per cent expansion.

Inflation this year will quicken to 4.6 per cent from 1.5 per cent last year and up from the 3.2 per cent forecast previously.

The trade surplus will widen to about US$250 billion (S$373 billion) this year from US$177.5 billion last year.

The forecasts put pressure on central bank governor Zhou Xiaochuan to raise lending and deposit rates for the sixth time this year to cap surging asset prices and cool the overheating economy.

The bank late on Thursday raised interest rates on some home mortgages and increased minimum down payments in an effort to cool property price gains.

The rate on loans for second homes and on commercial real estate was pushed to at least 1.1 times benchmark rates that the People's Bank of China did not specify in a statement. Buyers will have to pay not less than 40 per cent of a property's value as down payment, up from 30 per cent.

Until now, banks were barred from charging less than 90 per cent of the benchmark rates for mortgages. Interest rates on loans for first homes are unchanged.

'The central bank may need to raise key interest rates again' to cool inflation, said Mr Tao Dong, chief Asia economist at Credit Suisse Group in Hong Kong.

The government is also concerned that a surge in lending is creating a bubble that will drive up bad loans if it collapses. Investments in real estate development jumped 29 per cent in the first eight months of the year.

China raised its one-year lending rate for the fifth time this year to 7.29 per cent on Sept 14. Those increases have failed to dampen demand for property, as China's economic growth raises incomes and people favour fixed assets amid a 10-year high inflation of 6.5 per cent.

China's economy, the world's fourth largest, expanded 11.9 per cent in the second quarter from a year earlier, the fastest pace in more than 12 years.

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